S&P 500, Nasdaq Close at Record Highs as AI Chip Rally Overrides Inflation Fears

Suehyeon Lee

Summary

U.S. stocks closed higher despite a stronger-than-expected producer price index (PPI) reading, lifted by gains in AI-related technology stocks and semiconductor shares.
April producer price index (PPI) data showed the biggest monthly increase in the past four years, weakening expectations for Federal Reserve (Fed) rate cuts.
Investors were warned not to underestimate the risk of high inflation and high interest rates persisting, along with the possibility that the Fed could keep rates on hold for longer.

U.S. stocks closed higher on May 13 as strength in artificial intelligence-linked technology shares offset pressure from a hotter-than-expected producer price report.

Reuters reported that the S&P 500 and Nasdaq reversed early losses to finish at record closing highs.

Semiconductor stocks led the advance, quickly recouping the previous session’s losses. Six of the seven so-called Magnificent Seven megacap technology stocks tied to the AI trade rose between 1.4% and 3.9%.

"Technology shares remain resilient despite elevated inflation data," Ryan Detrick, chief market strategist at Carson Group, said. Semiconductor stocks, which had weakened a day earlier, also bounced back sharply.

Inflation concerns nevertheless persisted. The U.S. Labor Department said the producer price index rose 1.4% in April from a month earlier, the biggest monthly increase in the past four years.

The data further dimmed expectations for Federal Reserve rate cuts. Susan Collins, president of the Federal Reserve Bank of Boston, said another rate increase cannot be ruled out if inflation pressures do not ease.

Meanwhile, Kevin Warsh, President Donald Trump’s nominee to be the next Fed chair, cleared the Senate confirmation process on May 13.

Markets should not underestimate the risk of persistently high inflation and elevated interest rates, Jim Baird, chief investment officer at Plante Moran Financial Advisors, said. The latest PPI reading points to a greater chance that the Fed will hold rates steady for longer.